BC Budget 2013: Income Tax Hike To Balance Books

VICTORIA - British Columbia's Liberals turned their backs on more than a decade of devotion to tax cuts and hiked some significant ones Tuesday in a race to balance their books before heading into the May election.

Finance Minister Mike de Jong resorted to raising income taxes for corporations and high-income earners and boosting health-care premiums to help bridge the gap from deficit to surplus.

De Jong's budget tabled Tuesday forecasts a surplus of $197 million for the 2013-2014 fiscal year, while this year's budget posts a deficit of $1.2 billion

"We've fought our way back," he said.

De Jong's budget comes less than three months before the May 14 provincial election in which the Liberals are seeking their fourth consecutive mandate.

It borrows heavily from ideas already floated by the Opposition NDP, which has in the past mused about higher corporate taxes and higher personal levies on the most wealthy. The NDP have consistently led the Liberals in opinion polls.

Opposition New Democrat finance critic Bruce Ralston said he endorsed the Liberal moves toward income tax increases for corporations and the wealthy.

"I'm pleased that the B.C. Liberals, despite their strong attacks on those ideas when they were first mooted, have adopted them," he said.

The budget left members of the business community tersely unhappy. The business community has staunchly backed Liberal policies even as the economic downturn of 2009 forced the government to drastically recalibrate their budget into deep deficit territory despite winning an election on a deficit projected at $495 million.

Jock Finlayson, vice-president of the Business Council of B.C., said the corporate tax increases in the budget would not be a deep concern if taken by themselves. But added together with the province's return to the provincial sales tax, the ongoing carbon tax and the high Canadian dollar, the business community has deepening worries.

"We are quite concerned about the challenges we are facing in B.C. with respect to our competitiveness and unfortunately, this budget really doesn't say much about that," he said.

B.C. Conservative Leader John Cummins said the taxes in the budget do not provide incentives to businesses to create jobs.

"What do we see? About a half a billion dollars in tax increases to businesses over the next two years," he said. "That's a concern."

Since 2001, when the Liberals were first elected, cutting personal income taxes and business taxes have been their road map to prosperity, but economic adversity has forced the government to make difficult choices, de Jong said.

"Getting things right has meant a lot of tough decisions," the minister said. "But this is not the time to turn our backs on the discipline that has helped us through the worst of the economic downturn."

He said B.C. — unlike Ontario, which faces a multi-billion-dollar deficit budget — is one of the few political jurisdictions to balance its books.

"We do have the option of continuing to operate in a deficit position for many years to come, which is precisely what a lot of other governments are currently making their peace with," he said. "I'll tell you right now — we're not going to do that. Why? Because my parents used to tell me, with a measure of common sense derived from their agrarian roots: 'Son, we can't afford it right now.'"

De Jong announced a personal income tax increase of 2.1 percentage points to 16.8 per cent from 14.7 per cent for the next two years, when the hikes will expire. He also announced that corporate income taxes will rise to 11 per cent from 10 per cent on April 1.

"In pursuit of achieving our objective ... we are asking those who make a little more to contribute a little more," he said.

Last year, the Liberals said they would consider raising corporate income taxes to 11 per cent in 2014 from 10 per cent, but de Jong said the government is increasing the tax a year early due primarily to low price forecasts for natural gas which resulted in a revenue loss of $70 million.

The NDP has promised, if elected in May, to raise corporate income tax rates to 12 per cent and leader Adrian Dix has said he was also considering raising income tax rates for people earning above $150,000 if elected.

De Jong said other tax changes in the budget that will improve the government's bottom line include increasing medical services premiums by four per cent in January 2014 and raising taxes on tobacco by $2 per carton, effective October 1.

He said the government has plans to raise $625 million through sales of surplus properties and assets. De Jong said 16 properties, including vacant lots, former school sites and parking lots, are among properties that are estimated to provide a return of $260 million.

He said 65 properties are being prepared to hit the market.

"We expect the sale of surplus assets will deliver a net gain of approximately $625 million over the fiscal plan," de Jong said.

The budget's tax measures are expected to generate $1.2 billion over the government's three-year fiscal plan.

But Ralston said the asset sales force him to question the credibility of de Jong's ability to guarantee the budget is balanced.

Ralston said the one-time sale of provincial assets to beef up a weak bottom line does not erase future financial issues facing the government.

"It's not a sustainable way to balance the budget," he said. "You sell it once and you still have the same fiscal hole."

The budget forecasts economic growth in B.C. of 1.6 per cent in 2013, 2.2 per cent in 2014 and 2.5 per cent in 2015.

"We expect gradual improvements in commodity prices and markets for some of our key exports over the next few years, including lumber and electricity," de Jong said.

He was almost apologetic for what he described as the slim spending initiatives in the budget.

"Now, I'm going to come to the shortest of the presentations, which is new spending initiatives," de Jong said.

He announced an early childhood tax benefit program of up to $660 for the majority of British Columbians, but on a sliding scale for high-income earners.

De Jong said the government will place $1,200 into a Registered Education Savings Plan account for every B.C. child at six years old The money will be provided to children who are born after Jan. 1, 2007.

The program is called the B.C. Training and Education Savings Grant.

De Jong said the government is cutting carbon tax payments for greenhouse growers, who are forced to create carbon dioxide to grow their products. Farmers will also get a carbon tax break on the coloured fuels they use to power their machinery, he said.

Health spending is forecast to increase 2.6 per cent, with the Health Ministry receiving $2.4 billion over the three-year fiscal plan.

Health spending grew on average seven per cent per year between 2005-2006 and 2008-2009. It was reduced to an average of 4.4 per cent in the next four years and the Liberals say they will constrict it to 2.6 per cent.

The Hospital Employees Union said projected health spending announced last year in the budget for 2013-2014 is down by $234 million in today's budget.

De Jong said revenues are expected to grow an average of three per cent a year over the next three years, while the government attempts to keep annual average spending growth at 1.5 per cent over the same period.

Total provincial debt continues to rise with an expected debt for 2013/2014 to hit $62.7 billion and then grow to $69.4 billion by the end of 2016.

Note to readers: This is a corrected story. An earlier version stated the surplus at $127 million.